Bitcoin fuels competition from dozens of other virtual currencies

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Posted: Thursday, November 28, 2013 12:00 am

For many people, Bitcoin seems like something from the day after tomorrow.

For Lawrence Blankenship, it’s already a thing of the past.

A software engineer from Springfield, Mo., Blankenship is putting his money on PeerCoin, one of the biggest of the virtual currencies that are being promoted as alternatives to Bitcoin.

With mounting interest from prominent investors and growing acceptance from regulators, Bitcoin — either the new gold or the next Dutch tulip craze, depending on who is being asked — is at the center of the virtual money universe. Yet there are dozens of digital alternatives, like PeerCoin, Litecoin and anoncoin, whose backers point to advantages they say their currency has over Bitcoin.

PeerCoin, according to Blankenship, is closer than Bitcoin to perfect, communal money. Blankenship, 34, has arranged to accept PeerCoin as the virtual currency of choice at a Star Trek convention he is organizing in his hometown.

“Looking down the road 10 years from now, I definitely see Bitcoin being ousted,” he said. “Everyone’s going to start switching to other coins, and hopefully PeerCoin comes out ahead in that.”

In the alternative galaxy of virtual currencies, newly created money can become worth millions of real dollars in a few months. All the PeerCoin in existence, for example, was worth nearly $40 million last week. Programmers and mathematicians release new entrants into the field almost every week. On one popular exchange, Cryptsy, 60 different coins can now be traded.

Almost all of these altcoins, as they are known, have fed on the stratospheric rise of Bitcoin. Since the beginning of the month, the value of Bitcoin has risen to more than $1,000, from $200, and it is up more than 6,000 percent since the beginning of the year.

Many of the altcoins have risen at the same clip, driven by bets that the Internet has room for more than one form of virtual money, or that Bitcoin can be overtaken. The constant innovation opens the door to new opportunities for fraud and illegal activities.

Thanks to a lack of regulation, pump-and-dump schemes have become common. But the thousands of hours being poured into these projects underscore the degree to which a small but growing community believes that it has found the future of money.

“It’s a very intriguing thing, because in principle, you can have a kind of money with some advantages that have never been possessed by any past forms of money,” said George Selgin, an economics professor at the University of Georgia at Athens.

If this is a contest, Bitcoin is still light-years ahead of any of its competitors — the value of all Bitcoin is measured in the billions of dollars, while only a few others have even cracked $100 million. And Bitcoin has the basic attributes that most other coins are trying to imitate: an open-source computer code with no central authority and a mathematically determined rate of expansion, not relying on a central bank.

What’s more, most altcoins share the biggest weakness of Bitcoin: a violently fluctuating value. Most people are willing to use real currencies because they have stable values that make them good units of exchange. Virtual currencies, these days, are more like speculative commodities.

But this is not stopping the ascent of things like Litecoin, which is generally viewed as the second-most-popular digital money, with a total value of about $250 million last week. Unlike Bitcoin, which was invented by a shadowy creator known only as Satoshi Nakamoto, Litecoin was created by Charles Lee, a 36-year-old former programmer at Google who lives in Silicon Valley.

Lee said he wrote the original code for Litecoin in the hours after his children had gone to sleep. At the time, he said, many of the new currencies were being created by people who kept large hoards of the money they created, and then cashed out as soon as it rose in value. Lee, by contrast, gave advance notice of Litecoin’s release, and on that day he began with no coins himself.

Like Bitcoin, new Litecoin is created through a so-called mining process in which computers compete to solve math problems, with coins going to the first computer that succeeds.

The goal with Litecoin, Lee said, was not to replace Bitcoin. Instead, it was to be “silver to Bitcoin’s gold,” with faster-moving transactions and a more democratic mining process.

“People like choices,” said Lee, who now works for Coinbase, a company that provides virtual currency wallets. “You want to diversify your crypto-currency investments.”

Another virtual currency viewed as being in the top ranks is Ripple, which is at the center of a new online payment system also called Ripple. This has won some mainstream following because it has big Silicon Valley backers and promises to be more transparent and easier to regulate than Bitcoin.

Bitcoin has been criticized for the anonymity of its transactions, which have made it attractive for buying drugs and guns online. But many altcoin fans are more bothered by how easily governments can follow Bitcoin, because the transactions are all recorded on a public ledger. This was the motivation for the creators of anoncoin, which has been rising in value.

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